Quick Guide to Source-to-Pay
Source to pay, commonly abbreviated as S2P, is a piece of the procurement process that uses digital solutions to source products and services. While Source to Pay includes everything contained under the definitions of P2P, it also involves the sourcing of products and services.
Source to Pay is a calculated step within the basic business processes of procurement that places emphasis on behavior, encourages more efficient processes, and aims for a higher quality of overall spend management. Here’s how S2P works and how to implement this step at your business.
What is S2P?
To understand source to pay, let’s first review the steps in the procure-to-pay (P2P) process. P2P integrates purchasing and accounts payable tools to become more efficient. There are four key stages to the procure to pay process:
- Select products/services: the organization identifies an internal need. The procurement team will learn more about the specifications of the product needed and either source it from an approved list of vendors or issue an RFP.
- Compliance and ordering: a vendor is selected and the contract is negotiated. The procurement team will create an internal requisition order needed for the purchase to be made. The buying organization will also issue a purchase order to the supplier.
- Receipt and reconciliation: the product is received and checked against the purchase order. The buyer issues a receipt and records the transaction.
- Invoicing and payment: the supplier sends an invoice along with a payment deadline. The accounts payable team pays the invoice and the transaction is complete.
Where does source to pay fit into this process? Source-to-pay relates to the first step in the P2P process, the selection of products or services. Source-to-pay adds strategic sourcing to the process; if the procurement team decides to look outside of an approved list of vendors, they may engage in S2P.
Steps in the source to pay process
Source to pay adds a new element to the P2P process. Here’s what the entire procurement process looks like with the addition of smart sourcing.
- Select products and services: the organization identifies a need for a new product, better pricing, or improved contract terms.
- Sourcing: data is used to identify and evaluate potential vendors. This analysis may include data points such as market trends, historic spend, and organizational goals for product development. Vendor candidates are added into the buyer’s procurement software.
- RFx issued: the buyer issues an RFQ, RFP, RFI, or some combination of those documents. Vendors are invited to submit bids.
- Evaluation and award: vendor bids are evaluated by the buyer and the winner is chosen. If applicable, the purchase order or contract is created.
- Contract negotiation and approval: both parties review the contract, negotiate as needed, and sign the contract.
- P2P: the procure to pay process continues as normal, starting with compliance and ordering and ending with receipt of goods and reconciliation.
Data is a key feature of the source to pay process. By using S2P software, organizations can make their procurement function more efficient by treating procurement as one, streamlined process rather than disparate tasks.
Benefits of S2P
Adding source to pay to your procurement process can help bring greater visibility into purchasing. Source to pay solutions bring together critical processes into a single platform, creating a single view of all sourcing and purchasing activities. Consolidating procurement in one platform enables procurement teams to add transparency to the entire process, as well as to make the workflow more productive.
Transparency from S2P software also leads to stronger internal controls, compliance, and risk mitigation. S2P can improve collaboration and trust among partners, which allows both buyers and spenders to build better relationships. And, internally, organizations can begin to cut down on tail spend by integrating P2P, S2P, enterprise resource planning (ERP) and other managed procurement solutions. With the right data, S2P systems can also help procurement teams negotiate better pricing and have more accurate forecasting.
S2P can help build the foundation for stronger vendor-buyer relationships. Source to pay software enables more in-depth supplier sourcing; buyers can be assured that their vendors are compliant and able to navigate changing market conditions. Effective S2P processes help companies filter out vendors who don’t meet industry standards or company codes of conduct. With the right data, S2P software makes the vetting process streamlined and efficient.
How to get started with S2P
Source to pay may seem like a lot of additional work. But, the right software can make implementing this process easy. Fairmarkit’s plug-in system automates the RFQ process to save procurement departments time and money.
Without a solution like Fairmarkit, procurement departments either have to manually contact vendors during the source to pay process or default purchase from vendors that may be overcharging. Once an RFQ has been sent out, suppliers have a customizable timeline to submit a bid. This bidding process increases competition within the supplier market, allowing companies to get the lowest prices possible for their tail spend purchases.
Unlike catalog solutions, Fairmarkit does not replace a company’s current list of suppliers. Instead, Fairmarkit integrates with each company’s list of suppliers in their existing system. While Fairmarkit may be an extra purchase for a procurement department, the increased savings the software provides often pays for itself for medium to large companies.